GBP/USD plummets to fresh three-week low, below 1.2400 amid US CPI-inspired USD strength

• GBP/USD witnessed heavy selling for the third successive day amid broad-based USD strength.
• Stronger US CPI print for May reaffirmed hawkish Fed expectations and boosted the greenback.
• The risk-off impulse further underpinned the safe-haven buck and exerted pressure on the pair.

The GBP/USD pair extended this week's rejection slide from the 1.2600 neighbourhood and witnessed some follow-through selling for the third successive day on Friday. The intraday selling picked up pace during the early North American session and dragged spot prices to over a three-week low, below the 1.2400 round-figure mark.

The US dollar added to its intraday gains and shot to the highest level since May 19 in reaction to stronger-than-expected US consumer inflation figures. In fact, the headline US CPI climbed 1.0% MoM in May as against 0.7% expected and the yearly rate jumped to a fresh 40-year high level of 8.6%. Adding to this, core inflation, which excludes food and energy prices, rose 0.6% MoM and 6.0% YoY, surpassing consensus estimates for a reading of 0.5% and 5.9%, respectively.

The data lifted bets for a more aggressive policy tightening by the Fed, which was evident from a sharp spike in the shorter-dated US bond yields. Moreover, the markets are now pricing in a 50 bps rate hike each in June, July and September meetings. This, along with the worsening global economic outlook, triggered a fresh wave of the global risk-aversion trade, which further benefitted the safe-haven buck and contributed to the heavily offered tone surrounding the GBP/USD pair.

From a technical perspective, the intraday break through the previous weekly low, around the 1.2430 area, was seen as a fresh trigger for bearish traders. The subsequent slide and acceptance below the 1.2400 mark might have already set the stage for additional losses towards the 1.2330-1.2325 support. The downward trajectory could further get extended towards the 1.2300 round figure en-route the 1.2240 zone before the GBP/USD pair eventually drops to sub-1.2200 levels.

Technical levels to watch